Net income decreased to $356 million, or 81 cents a share,
from $455 million, or 98 cents, a year earlier, the Boston-based
company said today in a statement. Earnings included $72 million
in pretax severance expenses. Excluding some costs, State
Street’s operating basis net income was 99 cents a share,
compared with the $1 a share estimate of 20 analysts surveyed by
Bloomberg.

“The environment for the custody banks is continuing to
take out revenue and they just can’t really continue to wait on
interest rates to go higher,” Marty Mosby, an analyst with
Guggenheim Securities LLC in Hernando, Mississippi, said in a
telephone interview. “State Street started this process about a
year ahead of everyone else, and so they got to the end of their
previous initiatives ahead of the others.”

State Street has relied over the past three years on a
combination of cost cutting and global equity-market gains to
overcome the negative impact of low interest rates. In three
rounds of cuts from November 2010 to January 2013, the company
eliminated about 2,900 staff. State Street didn’t say in the
statement how many additional jobs were slashed in connection to
the first-quarter severance costs.

Interest Rates

The U.S. Federal Reserve has held its benchmark interest
rate at zero to 0.25 percent since December 2008 in an attempt
to stimulate borrowing and economic growth. Low rates hurt the
ability of custody banks to earn money on lending and investing
activities.

The Standard & Poor’s 500 Index of large U.S. stocks
advanced 1.3 percent during the quarter and jumped 19 percent in
the year ended March 31.

That helped boost assets under custody by 13 percent from a
year earlier, and by 2.9 percent in the quarter, to $21
trillion. The amount of money State Street invests for clients
rose 9.4 percent from a year earlier, and by 1.5 percent in the
quarter, to $2.38 trillion.

Higher assets helped lift revenue 2 percent to $2.49
billion. The increase was held back by a drop in trading
services revenue. Expenses increased 11 percent to $2.03 billion
from a year earlier, driven largely by the severance costs. Net
interest revenue declined 3.6 percent to $555 million.

Boosting Dividend

State Street said in March it planned to increase its
quarterly dividend to 30 cents a share from 26 cents after the
Fed approved its capital plan for 2014. The company also said it
would reduce its stock buybacks in the year through March 2015
to $1.7 billion from $2.1 billion in the previous 12 months.

Bank of New York Mellon Corp., the world’s largest custody
bank, said on April 22 its first-quarter profit was $661
million, after a $266 million loss a year earlier. Chicago-based
Northern Trust, the third-largest independent custody bank, said
on April 15 its net income for the period increased 11 percent
from a year earlier.

State Street reported results before the start of regular
U.S. trading. State Street’s shares slumped 10 percent this year
through yesterday, the most among the three biggest U.S. custody
banks. BNY Mellon declined 3.8 percent this year and Northern
Trust fell 2.7 percent.

(State Street is scheduled to hold a conference call for
investors at 9:30 a.m. New York time. The call can be accessed
at http://www.statestreet.com/stockholder and by telephone at
+1-888-391-4233 inside the U.S. and elsewhere at +1-706-679-5594
(Conference ID # 18206022).)